This study examines the impact of environmental and climate change reputation risk on the cost of equity, emphasising the role of financial analysts’ perceptions of corporate responses to climate change exposures. We find that reputational risk measured by environmental misconduct is positively associated with a higher cost of equity. However, firms that adopt a proactive approach to climate change-demonstrated by positive attitudes in earnings conference calls-experience lower equity costs following environmental misconduct. Conversely, negative corporate attitudes toward climate risks increase the equity costs of such incidents. The mediating effect of corporate attention on climate change exposures arises through its influence on analysts’ expectations of earnings forecasts. These results highlight the importance of proactive corporate engagement with environmental and climate risks in shaping investor perceptions and financial outcomes.
